Chinese Firms to “Localize” Labor in Latin America

˙ China & Latin America

Over the last five years, major Chinese corporations including China Harbor Engineering Company, Shanghai Construction Group and China Railway Construction Corporation have fueled Latin America’s ongoing construction boom, making large-scale investments in transportation, logistics, and other sectors. These firms typically provide a combination management and technical expertise, as well as financing from Chinese banks. In many cases, companies also contract Chinese labor rather than local workers – a practice which has become one of the more high-profile and contentious aspects of Chinese engagement in parts of Latin America.

Substituting Chinese workers for local labor first became prevalent among firms operating in Africa, where many low-wage workers lack literacy or other basic skills. Employing Chinese labor reduces project risk and cuts costs for firms operating overseas. Until recently, Chinese workers demanded lower salaries than their local counterparts in most Latin American countries. Eliminating the cultural and language barriers between Chinese managers and workers also lowers the incidence of protest by organized labor and scrutiny from national regulators, both of which have delayed international ventures by Chinese companies.

In the Western Hemisphere, recent use of Chinese labor is mostly concentrated in Caribbean nations such as Antigua and Barbuda, Bahamas, Barbados, Guyana, Jamaica and Trinidad and Tobago. China enjoys a strong bargaining position relative to these countries, whose small market size and limited financing make partnering with Beijing a particularly attractive prospect. In contrast, few labor-related concessions have been granted by larger Latin America countries – even those, like Venezuela, that rely heavily on Chinese lending.

Across the board, however, new Chinese projects in Latin America and the Caribbean are more likely to rely on local rather than Chinese laborers. Vice president Lin Yichong of state-run China Harbour Engineering Company, one of the biggest players in the Caribbean, shared with the Trinidad Express in June 2013 that the firm would seek to “localize” its hiring practices in the Caribbean. Similarly, projects announced in Guyana and Jamaica in the last year will significantly cut back on employment of Chinese workers.

The apparent shift in labor policies can be partly attributed to changing economic realities in China, the experience of Chinese firms in Latin America, and the increasing professionalization of Chinese companies operating globally.

1. Fewer Chinese laborers going overseas

Statistics published by China’s Ministry of Commerce show slowing outflows of Chinese labor worldwide. While China’s internationally contracted projects in 2013 increased 17.6 percent in dollar terms, labor dispatched overseas increased by only 6 percent. The total overseas stock of Chinese workers grew by only 0.4 percent  in 2013, a considerable decrease from 8 percent growth between 2009 and 2010, the first years for which such statistics were made publicly available.

These shifts reflect changing economic realities for Chinese firms. Wages in China have risen significantly since 2011 as a product of the country’s rapid urbanization and industrialization, making Chinese labor more expensive both at home and abroad (especially in Southeast Asia and Africa). This trend is likely to continue, driven by high demand for low-skilled labor in China as the Chinese government undertakes major upgrades to national infrastructure over the next five years. As travel, lodging and food for Chinese workers becomes more expensive, overseas firms are increasingly likely to employ locally.

2. Resistance to Chinese labor in Latin America

Frictions have emerged between overseas firms, organized labor, local communities and governments over the employment of Chinese workers in the Caribbean. Unions have spearheaded opposition protests in countries including the Bahamas, Barbados, Guyana, Jamaica, and Trinidad and Tobago, indicating that Chinese companies do not deliver the promised economic benefits of development. Sensational reporting by the media in many countries only exacerbates resentment towards Chinese workers, who have been the target of violence in a number of countries.

In many larger countries, legal and regulatory frameworks require Chinese corporations to employ local workers. In Brazil, which alone accounts for roughly half of Latin America’s construction market, laws mandate that at least two thirds of the workforce be Brazilian and that employment of foreign workers is justifiable only in a narrow set of circumstances. Although reforms to these statutes have been proposed in response to the country’s tight labor market, restrictions will likely be selectively relaxed skilled workers and for speakers of Portuguese and Spanish. Statistics from Brazil’s Department of Labor show that over the last three years, the number of Portuguese and Spanish workers increased by 81% and 53%, respectively, while Chinese worker growth trailed behind at 24%.

3. Internationalization and professionalization of Chinese firms

Changes in hiring also reflect lessons learned by Chinese companies operating internationally. In response to directives from Beijing – and, and in some cases, international criticism – China’s overseas firms have increasingly sought to adopt best management practices. In Brazil, telecommunications firm Huawei has indicated increasing interest in local production and hiring in an effort to both take advantage of local tax incentives and better “serve the local market.” Chinese president Xi Jinping highlighted the need for greater attention for “mutually beneficial” modes of economic engagement with the region and increased responsiveness to local concerns during his visit to the region in 2013.

Resistance among Latin American and Caribbean nations and China’s own economic transformation will likely mean fewer Chinese workers in the coming years. Still, the “localization” of Chinese hiring will be a gradual process. Firms have economic incentives to transition laborers already employed in Latin America to new projects rather transporting this labor to China or other regions. Some corporations, such as Shanghai Construction Group, also argue that Chinese workers possess unique skills that make them preferable to locals. In any case, Latin American governments must look to better integrate Chinese workers into the fabric of their societies – particularly since many attempt to emigrate following the completion of their projects.